Month: January 2018

Cash flow statement

What is the cash flow statement? – Definition A cash-based statement of financial position that defines financial resources like cash, and explain what caused the changes in the cash balance during the year is called cash flow statement. Cash flow statement shows the movement in cash items that takes place over a given financial period. …

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Prime Cost

What is Prime Cost? – Definition Prime Cost is the aggregate of direct material cost, direct labor cost and direct expenses. Prime Cost is also known as ‘Flat Cost’, ‘First Cost’ or ‘Direct Cost’. prime Cost of a product is the total of its direct costs. Once the cost of raw materials used in a …

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Sources of cash

In any given period cash will be generated by any of the following activities: Net profit made in the period. Increase in share capital during the year. Increase in any liability during the year Decrease in any asset during the year Let us consider each of the above sources in some detail. Net Profit as …

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Factory Overheads

Definition of Factory Overheads Factory Overheads may be defined as the aggregate of indirect materials, labour and other costs which cannot conveniently be identified with the articles produced or services rendered.  The benefits of these cannot be identified with a particular cost unit. Instead, they are apportioned among cost units on an equitable basis. Overheads constitute …

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Production cost

Definition and explanation Production cost, or Factory cost, or Cost of goods manufactured, is the sum of Prime cost and Production overheads. The calculation of this figure is shown in a special ledger account called Manufacturing Account. The figures disclosed in the Trial Balance of a manufacturing concern, relating to raw material, direct labour and …

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Cash flow from investing activities

Explanation Investing activities are the acquisition and disposal of non-current assets and other investments not included in cash equivalents. The separate disclosure of cash flows arising from investing activities is important because the cash flows represent the extent to which expenditures have been made for resources intended to generate future income and cash flows. The …

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Non cash Incomes

Definition and Explanation Just as non-cash expenses do not result in cash outflow, non-cash incomes do not lead to cash inflow and must, therefore, be excluded from the year’s profit. The two examples of non-cash incomes are appreciation in value of a fixed asset arising out its revaluation, and profit on sale of a fixed …

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Non cash Expenses

Definition and Explanation Certain items are debited to Profit and Loss Account (or Income Statement) as an expense though they are not paid out in cash in that particular period. The most obvious example of such non-cash expenses is depreciation. By debiting the amount of depreciation in the Income Statement, we lower the amount of …

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Difference between trading and manufacturing concern

The difference between Trading and Manufacturing concern can be explained with the help of following points: Nature of purchase Trading Concern: These business institutions purchase merchandise in ready shape to sale condition, for example, furniture dealer purchase furniture from the manufacturer and sell it to customers without additional processing. Manufacturing Concern: Manufacturing institutions employ labour and machinery …

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Work in process

Definition and explanation At the end of any financial period there are certain goods in every manufacturing concern that have been partially processed so that they cannot be called raw material anymore. But at the same time they are not fully processed and cannot be called finished goods either. Such goods are called Work in …

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Manufacturing profit

Explanation Some manufacturing concerns prefer to transfer finished goods from factory to warehouse at a marked up price. This is arrived at by adding a certain pre-set margin (called Manufacturing Profit) to the Production Cost. When preparing the Income Statement, it is the enhanced Cost of Production, which is taken into account to compute the …

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